Clamp on home loans may be gone in year
Home-loan restrictions introduced by the Reserve Bank in October could be gone as early as a year from now, an industry source says.
The "speed limits" restrict the amount of high loan-to-value ratio (LVR) loans banks can issue.
The success of the policy has taken even the Reserve Bank by surprise, with lending by major banks staying well under the 10 per cent limit so far.
That has left some first-home hunters with small deposits struggling to secure finance in the overheated property market.
However, all the signs point to the Reserve Bank thinking hard about when to remove the restrictions, which were designed to be temporary.
An industry source said a senior Reserve Bank official had recently put a 12 to 18-month timeframe on the LVR rules being lifted.
A Reserve Bank spokesman said that as far as he was aware, the central bank had not been specific or discussed a timeframe for lifting the restrictions.
However, that 12 to 18-month window closely aligns with the expected cycle of interest rate hikes, which started last month.
Reserve Bank deputy governor Grant Spencer said last week that as interest rates moved back to more normal levels, "we will expect to have greater scope to ease or remove the LVR restrictions".
A Reserve Bank bulletin article this week reaffirmed that the bank is considering the conditions that would justify their removal.
While there was no set trigger, it said the bank wanted evidence of a better balance in the housing market, and confidence that removal would not lead to a resurgence of demand.
The article acknowledged that the policy room provided by LVR restrictions could only be temporary.
"In the medium to longer term, imbalances will need to be resolved through appropriate longer-run policy measures, including actions to improve the housing supply," the Reserve Bank said.
The LVR policy was aimed at taking some steam out of the rapidly inflating property market and putting the brakes on credit growth.
The Reserve Bank's estimates suggest house-price inflation would have been about 2.5 percentage points higher in the year to the end of February without the restrictions in place.
SHOP AROUND AND SAVE
Home-loan borrowers could save more than $90,000 during the life of their mortgages by shopping around, research agency Canstar says.
The research agency's latest home-loan star ratings report compares 95 home loans from 10 lenders.
The analysis found a difference of 59 basis points (more than half a percentage point) on floating home loan rates.
Canstar calculated that difference was enough to knock $93,000 off a $300,000 mortgage over 30 years, and cut the term by more than four years.
Derek Bonnar, Canstar's New Zealand general manager, said that even in the low-interest environment, the difference between the highest and lowest floating mortgage rates worked out to $113 a month.
There were potentially much greater savings to be made if borrowers negotiated the lower rate but kept their repayments at the same level.
Bonnar said the interest rate remained one of the biggest factors affecting the cost of the mortgage during its lifespan.
"For households, keeping their repayments slightly higher when negotiating a low rate could potentially mean a fantastic overseas holiday, or retiring a year earlier," he said. "It is well worth the effort."
While borrowers have been flocking to fix their mortgages at the attractive record-low rates of recent years, almost 40 per cent are still floating.
Those homeowners are able to freely switch between lenders without having to pay expensive break fees.
The five loan categories Canstar assessed were residential floating, residential fixed, investment floating, investment fixed, and line of credit.
The weighting for judging was 60 per cent to 85 per cent based on pricing, and 15 per cent to 40 per cent based on features of the loan, including fees, portability and security requirements.
Kiwibank was given a five-star rating in four of the loan categories, followed by Westpac, with five-star ratings in three categories.
SBS Bank achieved the top rating in both residential fixed and investment fixed, while ANZ took five stars for its line of credit product.
Bonnar said with potentially many thousands of dollars to save, "taking the time to shop around is a great return on investment".